Income redistribution, otherwise known as redistributive taxation, is basically the transfer of income or property from those who have it to those who don’t. This transfer may take the form of cash payments or other types of direct transfers like inheritances. In some cases, income is distributed through means that do not directly involve money like giving away tax exemptions or paying estate taxes. For instance, many people receive aid for housing that they in no way need, but they may be entitled to receive them through means such as food stamps and Medicaid. The question of how to distribute the wealth has long plagued public policies and has been debated time and again.
Over time, however, income distribution programs have started to become more prominent in government programs such as social security. The growth of these programs is a clear indication of the need to address the question of how to distribute the wealth. In developed countries, however, the relative lack of income mobility is posing real problems, especially as populations grow and ages is growing. In addition, the growth of government programs such as social security have also been accompanied by the growth of new technologies, which tend to provide people with greater income capabilities.
The difficulty of redistributing income stems from two main factors. The first is the way the distribution is carried out. In certain cases, this comes down to the policies of the countries in which the citizens live. Different countries, for example, have different rules about how the funds are used. On the other hand, income redistribution is generally the same across the board in most developed countries.
One of the underlying causes of the rising inequality of wealth and the increasing frustration of the middle class are the growing power of big corporations. These corporations often have access to finance which allows them to invest in the stock market or buy up large chunks of land at bargain prices. Because they are able to do this, they have become richer than many of the citizens of their country and this has resulted in the growing problem of income redistribution.
The second problem of income redistribution is the excessive use of taxation. The taxation that all countries subject their citizens to is a form of transfer of wealth. While some taxes are necessary to fund public goods and services, excessive taxation has distorted the tax system so that the burden of taxation falls more on the poor than the rich. For this reason, optimal income redistribution requires the reduction of unnecessary public expenditures, better distribution of wealth through taxation and adequate welfare programs for those who are suffering from disadvantage.
How does income redistribution occur? It occurs through government transfers such as income tax, public spending, and direct grants to individuals, families, and organizations. Government transfers reduce the difference between what the rich earn and how they spend their money. Public spending encourages people to save more for their future and purchase things that will be useful to them. Direct grants to help families and individuals achieve the same end.
When people save, they tend to spend less. This means that government transfers can be used to increase economic activity without reducing the amount of money spent on necessities. The trick is to ensure that the beneficiaries (the recipients of the transfers) also use some of the funds to purchase items that will help them improve their lot in life, for example education. This way, recipients can earn higher education and contribute to economic growth while receiving support that will allow them to live decently.
While income redistribution occurs through government transfers, it can also be a result of private action. People can choose not to redistribute their wealth because it is economically inefficient or unjustified. For instance, some individuals may be able to continue to profit from the wealth without earning anything as a result of their decisions. Conversely, others may be prevented from doing so due to the laws of physics or equity. It therefore depends on each individual’s circumstances, whether or not they should engage in income redistribution.